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Vancouver public company accounting firm stripped of audit work

As public company gatekeepers, Hay and Watson failed to meet adequate accounting standards, according to the Canadian Public Accountability Board.
The Canadian Public Accountability Board terminated the designation of Hay and Watson Chartered Professional Accountants.

A Vancouver accounting firm has been stripped of its privilege to audit public companies after the Canadian Public Accountability Board uncovered “widespread and serious violations of audit documentation standards and a fundamental absence of supervision and review.”

The board terminated the designation of Hay and Watson Chartered Professional Accountants as a “Participating Audit Firm” and directed the company to cease all ongoing audits of B.C. public companies. The board has also censured the firm.

The board oversees accounting firms that audit registered public companies and the findings against Hay and Watson add to ongoing and more widespread concerns it has about public company financial reporting in B.C.

Accountants are considered gatekeepers for the public markets, providing investors with reliable information through audited financial statements, and acting as a barrier to corruption.

In its decision, the board’s investigation reviewed five Hay and Watson audit engagements of three companies, finding numerous violations.

“The result was that it was unclear what audit work had been performed, reviewed and completed prior to the audit report dates. The combination of these violations concentrated in such high numbers in each of these files raised significant concerns regarding the quality of the firm’s audit work,” stated the decision on Aug. 2.

As one example, the board found in one set of audit work papers that “approximately half the documents were modified after the report release date, and approximately 20% of those work papers were modified after the file assembly period in violation of the applicable professional standards.”

And in that case, board investigators found no documentation to specify what changes were made, who made the changes or why the changes were required. And one in five work papers were not signed off by an accountant on the “engagement team.”

The board said Hay and Watson are a smaller audit firm, with under 50 companies as clients.

Before the Canadian regulator came down on Hay and Watson, the firm had caught the attention of America’s likewise regulator, the Public Company Accounting Oversight Board (PCAOB), which revoked the firm’s registration and fined it $50,000.

The board did not fine Hay and Watson, nor did it rule against its owner Essop Mia, who is now barred from being associated with a registered public accounting firm in the United States.

In a much more detailed decision than that of the board, the U.S. regulator explained how Mia falsified numerous documents of a California-headquartered company registered in Ontario by altering and backdating them.

Reached by phone at his False Creek office, Mia declined to comment on the board decision.

While the board handles regulations concerning public company accounting firms, it is the Chartered Professional Accountants of BC (CPABC) that enforces individual accountants.

Mia is a licensed member of the CPABC and advertises accounting, tax and financial management services to the B.C. public, online.

The board had previously sanctioned three other larger Vancouver-based accounting firms.

Dale Matheson Carr-Hilton LLP, which audits 268 companies, “is prohibited from accepting new elevated or high-risk reporting issuer clients including those resulting from initial public offerings, reverse takeovers or other transactions,” according to the board in a decision published June 13.

On Dec. 14, 2021, the PCAOB fined Dale Matheson Carr-Hilton LLP $50,000 and ordered remedial action for violating American regulations.

And, Manning Elliott LLP, with 126 companies as clients, is also subject to similar prohibitions now, according to a June 28 board decision.

Lastly, a third company, Smythe LLP — with 117 companies as clients — “is prohibited from accepting new reporting issuer audit clients including those resulting from initial public offerings, reverse takeovers or other transactions,” according to a May 9 board decision.

All three aforementioned companies are also ordered to undertake remedial efforts to improve their firm and are under enhanced supervision from the board.